Kelly is fired after he stands up to his boss Marty Peretz on an unrelated personnel issue, and fellow writer Charles "Chuck" Lane (Peter Sarsgaard) is promoted to replace him. Glass publishes an entertaining story titled "Hack Heaven" about a teenage hacker named Ian Restil who was given a lucrative job at software company Jukt Micronics after hacking into their computer system. After the article is published, Adam Penenberg (Steve Zahn), a reporter at Forbes Digital Tool, begins researching the story in order to discover how Glass scooped them. Penenberg is unable to uncover any corroborating evidence for Glass' story and brings his concerns to The New Republic.

Charles Lane becomes suspicious when Glass cannot provide sources for his article and when the few pieces of concrete evidence are discovered to be a Palo Alto voicemail box and an amateurish website representing Jukt Micronics. Lane drives Glass to the hotel where the hacker convention he wrote about supposedly took place. Despite frantic attempts at spin from Glass, Lane discovers that the convention room at the hotel was not open the day the convention supposedly took place and that the restaurant where they supposedly ate dinner closed in the early afternoon.

Glass finally admits to Lane that he wasn't actually at the hacker convention, but relied on sources for information. Lane is outraged, but proceeds cautiously after telling Glass that he wants the truth from now on. He suspends Glass, earning him the enmity of the staff reporters, who all like Glass; Caitlin Avey (Chloe Sevigny), Glass' friend and fellow writer at the magazine, is so angered she considers quitting. When a colleague calls Lane to express concern for Glass' state of mind, he also reveals that Glass has a brother in Palo Alto, and Chuck realizes the brother must have posed as the president of Jukt Micronics.

Lane goes back to the office, where he finds Glass and confronts him. Glass pleads for another chance, but Lane orders him out of the office and takes his security access card. Searching through back issues of The New Republic, Lane realizes that much, if not all, of Glass' previous work was falsified, and when an emotional Glass suddenly returns to the office, Lane fires him.

After she hears the news, Caitlin accuses Lane of wanting to get rid of everyone that was loyal to Michael Kelly, but he challenges her to act like the good reporter she is. He reminds her that half of the falsified stories were published on Kelly's watch and that the entire staff will have to apologize to their readers for allowing Glass to continue to hand in fictitious stories.

When Lane arrives at the office the following day, the receptionist wryly remarks that all this trouble could have been averted if reporters were mandated to photograph all their sources. In their meeting, Lane discovers the staff has written an apology to their readers, and they spontaneously begin to applaud their editor, signifying their unity.

At a meeting with Glass and Glass' lawyer, Lane is told the entire truth. Glass, in effect, admits that 27 of the articles he wrote were fabricated in whole or in part.

Producer Craig Baumgarten, working with HBO executive Gaye Hirsch, optioned H.G. Bissinger's Vanity Fair magazine article about Stephen Glass for an HBO original movie. They hired screenwriter Billy Ray based on the script he had written for the TNT film Legalese.[5] Ray grew up with Bob Woodward and Carl Bernstein as his heroes and studied journalism for a year. It was this love for journalism that motivated him to make Shattered Glass.[6]

A sudden change in management put the film into turnaround and it remained inactive for two years until Cruise/Wagner Productions bought it from HBO.[7] They took it to Lionsgate and Ray asked the studio if he could direct in addition to writing it. Ray stuck with the project because he knew Bissinger, having previously adapted one of his books, Friday Night Lights.[citation needed] The challenge for Ray was to make the subject matter watchable because, according to the filmmaker, "watching people write is deadly dull ... in a film like this, dialogue is what a character is willing to reveal about himself, and the camera is there to capture everything else".[5] The breakthrough for Ray came when he realized that the film's real protagonist was not Glass but Chuck Lane. According to Ray, "as fascinating as Stephen Glass is by the end of the movie people would want to kill themselves – you just can't follow him all the way".[5] He used the Bissinger article as a starting point, which gave him a line of dialogue on which to hook the entire character of Glass: "Are you mad at me?" According to Ray, "you can build an entire character around that notion, and we did".[7]

To prepare for the film, Ray interviewed and re-interviewed key figures for any relevant details. He signed some of them as paid consultants and gave several approval over the script.[6] Early on, he spent a considerable amount of time trying to earn the trust of the people who had worked with Glass and get them to understand that he was going to be objective with the subject matter.[8] The real Michael Kelly was so unhappy about how he was portrayed in Bissinger's article that he threatened to sue when Ray first contacted him about the film[6] and refused for two years to read Ray's script,[9] which he eventually approved.[6] Ray attempted to contact Glass through his lawyers but was unsuccessful. Lionsgate lawyers asked Ray to give them an annotated script where he had to footnote every line of dialogue and every assertion and back them up with corresponding notes.[5]

The night before principal photography began in Montreal, Ray screened All the President's Men for the cast and crew.[9] He shot both halves of the film differently – in the first half, he used hand-held cameras in the scenes that took place in the offices of The New Republic, but when the Forbes editors begin to question Glass, the camerawork was more stable.[5]

Ray's original cut of the film was a much more straightforward account of events but while editing the film he realized that it was not good enough. He raised additional funds to shoot the high school scenes that bookend the film.[5]

On April 3, 2003, a little more than six months before the film was released, Michael Kelly was killed while reporting on the invasion of Iraq. The film is dedicated to his memory.

Shattered Glass has received critical acclaim. It holds a 91 percent at the review aggregate website Rotten Tomatoes, with the consensus being "A compelling look at Stephen Glass' fall from grace."[11]

A. O. Scott of The New York Times described the film as "a serious, well-observed examination of the practice of journalism," and "an astute and surprisingly gripping drama." He added, "A more showily ambitious film might have tried to delve into Glass's personal history in search of an explanation for his behavior, or to draw provocative connections between that behavior and the cultural and political climate of the times. Such a movie would also have been conventional, facile and ultimately false. Mr. Ray knows better than to sensationalize a story about the dangers of sensationalism. Shattered Glass is good enough to be true".[12]Roger Ebert of the Chicago Sun-Times gave the film three-and-a-half stars out of four and felt the film was well-cast and "deserves comparison with All the President's Men among movies about journalism".[13] In a dissenting review from The Village Voice, J. Hoberman dismissed the film as "self-important yet insipid," and asks, "Shattered Glass begs a larger question: What sort of culture elevates Glass for his entertainment value, punishes him for being too entertaining, rewards his notoriety, and then resurrects him again as a moral object lesson?"[14]